We see a 40% chance of a recession beginning in 2013, and if that happens, industrial commodities will be hit hard. In the event that the US is able to avoid a recession, we see largely flat performance for most commodities, excluding oil and gold.

Oil
We expect to see oil continue to trade in range, $85-105, unless a geopolitical event constrains supplies. If war n earnest breaks out in Israel or Iran we could see prices as high as double that. If there is relative peace, but a global recession breaks out, oil could fall below $75.

Gold
We expect gold to remain strong as an alternative investment and for the purposes of capital preservation, as it acts as an insurance policy against negative currency events.

We expect the markets to react negatively to the reduction in quantitative easing by the Fed. We feel, in fact, that much of the success and resilience that stocks have shown over the past three years have been due to these programs.

Further, the fiscal cliff deal that will return capital gains rates to pre-Bush levels will have a negative effect on all long-term assets, including stocks.

When we roll our magic dice and shake the magic eight ball, both come up with -3.2% for the S&P 500 for 2013.

A recent Bloomberg article details Google’s corporate structure, which moves revenues to subsidiaries in low-tax countries such as Ireland, Bermuda, and the Netherlands, with the result of reducing corporate taxes in those countries that are their largest markets: the United States and United Kingdom.

Google’s not alone, of course. Both Facebook and Microsift use similar tax structures, and a US Treasury measure to tax monies moved between international subsidiaries was halted by what we’ve come to know as the “political process”:

Treasury officials, who estimated the policy change would raise $86.5 billion in new revenue over the next decade, dropped it after Congress and Treasury were lobbied by companies, including manufacturing and media conglomerate General Electric Co., health-product maker Johnson & Johnson and coffee giant Starbucks Corp., according to federal disclosures compiled by the non-profit Center for Responsive Politics.

Following similar measures in Greece and Iceland, Portugal’s leadership has approved its largest spending cuts since the 1970s. Economists have comented that it will likely “hurt growth” of the country’s economy, which hasn’t been a growth powerhouse to begin with:

The spending cuts, the biggest since the 1970s, may hurt Portugal’s economic growth, which has averaged less than 1 percent a year in the past decade. That trails the 1.3 percent pace for the whole euro region.

This will almost certainly lead the country into a lengthy recession until the reforms “bear fruit,” according to economists.

Bloomberg is reporting that so-called “QE2″ may be contagious this week, as Central Banks engage in a race to the bottom for their respective currencies:

fallout from the Fed could cause Bank of Japan Governor Masaaki Shirakawa to do more for his economy and Bank of England Governor Mervyn King to leave the door open to more aid. Even as European Central Bank President Jean-Claude Trichet holds the line against inflation, he may eventually change course if the euro surges, while emerging markets are already acting to restrain currencies.

This bodes well for nominal asset prices in the short term: stocks, commodities, metals… But the long term inflation repercussions could wipe out real gains in the process. Pricing in these rounds of “Quantitative Easing” is not for retail investors.